Accumulate UMW-OG: CIMB Research
KUALA LUMPUR: Following UMW Oil & Gas Bhd’s announcement today that it had secured the first contract for the Naga 5 jack-up drilling rig in the Philippines worth US$7mil, adding to last week’s contract extension in Vietnam for Naga 2, CIMB Research is calling a Buy on the stock.
“The company is on a roll as it eyes more regional opportunities for its expanding fleet of jack-ups. We continue to value the stock at 22.5 times CY15 price-earnings ratio, a 40% premium over our implied market target of 16.1 times, but still within the historical price-earnings range of the oil & gas big caps,” the research house said.
“Aggressive fleet expansion is the potential re-rating catalyst that supports our non-consensus Add recommendation,” it added.
UMW-OG in a press statement said that it had bagged the drilling contract from Nido Petroleum of the Phillippines, with work commencing in June 2014 for a duration of about six weeks.
CIMB Research said although it had factored in contributions from the three jack-ups slated for delivery next year – Naga 5, Naga 6 and Naga 7 – it was nonetheless thrilled that UMW-OG has secured a contract for Naga 5 five months before the jack-up is rolled out.
Naga 5, costing US$223m, is currently under construction at Keppel's yard in Singapore.
“Though the contract duration is only for about six months, it helps to open a new market for UMW-OG as the company builds its presence in South-East Asia. The Philippines is the company's third new market this year after Vietnam and Thailand. Having said that, Malaysia remains the company's main focus.
The research house advised investors to accumulate the stock and ride the excitement as UMW-OG embarks on an aggressive fleet expansion to take advantage of the shortage of Malaysian-flagged jack-ups, as well as the high demand for this asset class in South-East Asia.
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